Question

Suppose your employer offers you a choice between a $4,800 bonus and 100 shares of the​ company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $62.26 per share. A. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?B. If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?

1A. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?If you are free to trade the​ stock, the value of the stock bonus today is? (Round to the nearest​ dollar.)

2B. The value of the cash bonus is ?Round to the nearest​ dollar.)

3C Which bonus should you​ choose? Stock or Cash?

2 . If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?  ​(Choose all the answers that​ apply)

A.You might decide that it is better to take the $ 4, 800 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $4,800 today in another equally risky asset that would be worth more than the stock one year from now.

B.Since you work for this company you are considered to be a stakeholder. This implies​ that, for​ you, the​ company's shares are worth more than $6,226 today.​ Therefore, you should take the stock bonus.

C.Because you could buy the stock today for $6,226 if you wanted​ to, the value of the stock bonus cannot be more than $6,226. But if you are not allowed to sell the​ company's stock for the next​ year, its value to you could be less than $6,226.

D.The​ stock's value will depend on what you expect it to be worth in one​ year, as well as how you feel about the risk involved. There is no​ clear-cut answer to which alternative is​ best, because taking the stock today and having to hold it for a year involves risk.

Answer 1

ANSWER 1 A

If the stocks are given with the condition free to trade in the market immediately the stock bonus option should be opted. Since the stocks can be traded in free market the probable cash value of these shares becomes more than the cash bonus.

The value of stock bonus

= Price per share * number of shares

= $62.26 * 100

=$6,226

2B. The value of cash bonus as given in the question is $4,800

3C The stock bonus should be chosen as the cash value of bonus $4,800 is lesser in comparison with the stock value of $6,226

ANSWER 2

If the stock bonus are received and are required to hold it for at least one​ year,

The following options equally hold true in the given case.

A.You might decide that it is better to take the $ 4, 800 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $4,800 today in another equally risky asset that would be worth more than the stock one year from now.

D.The​ stock's value will depend on what you expect it to be worth in one​ year, as well as how you feel about the risk involved. There is no​ clear-cut answer to which alternative is​best, because taking the stock today and having to hold it for a year involves risk.